• Monday, June 24, 2024
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Telcos’ new business push targets digital start-ups

Why telecom market attracts low capital imports in recent years

Telecommunications operators in the country, including MTN, Airtel, Globacom and Etisalat Nigeria, are investing heavily in digital incubation initiatives for technology start-ups.

The telcos are providing requisite support for the start-ups by way of funding, mentoring and acceleration, in order to harness indigenous skills and talents for the development of locally-relevant applications and content.

Market observers are of the view that mobile operators’ foray into software incubation is a part of the digital tidal wave reshaping the country’s vibrant telecoms industry.

The trend, according to them, is perhaps driven by the need to sustain revenue diversification through the creation of fresh business opportunities in the delivery of digital services.

Proceeds from voice oriented services have steadily declined due to regulatory and competitive pressures, as exemplified by the price wars which swept across the industry four years ago.

According to market observers, new software application and content services developed by these indigenous start-ups will reside on the networks of respective telecoms operators, paving way for increased adoption and usage of mobile data offerings, which would in turn drive up revenues derived from internet services.

Kenechi Okeleke, senior analyst at GSM Association (GSMA), said telecoms operators in the major markets across the African continent currently record double-digit revenue contribution from non-voice services. “This is making a strong case for the expansion of their non-voice service portfolios”, he said in a recent note accessed by BusinessDay.

The National Integrated Infrastructure Master Plan says the nation intends to establish Information Communications Technology (ICT) – enabled digital incubation centres, as well as fabrication centres for ICT hardware, with cost amounting to $70 million.

In view of this estimate, networks are expected to step up their level of participation in the nation’s technology start-up scene, with a large chunk of the said investment likely to come from their purses. Market observers say that such moves will likely create fresh job opportunities for Nigerians and open up fresh revenue streams for operators.

In 2014, MTN, the nation’s largest operator by subscriber base, with 60 million customers, said non-voice revenues, including data service, enterprise business andValue Added Services (VAS)contributed approximately 20 percent to the firm’s total revenues.

“In 2015, we intend to grow these new revenue streams. The future of the ICT industry is in full scale digital services with the evolution of technology and convergence”, said Funmi Onajide, general manager, corporate affairs, MTN, in an interview with BusinessDay. “Voice service is now viewed as the most basic service and it has become commoditised. Digital services are the new growth area and the battle ground for competition”, she added.

India’s Airtel has invited Nigerian ICT start-ups in the games, entertainment, health and fitness, lifestyle, education, social networking and utility sectors to register for the possibility of winning a N1 million cash prize and mentoring, marking further funding support for their business.

Read also: ‘Seplat is Nigeria’s local content champion’

“We aim not only to identify talent, but also to encourage local content. The applications and services developed by these start-ups will ride on Airtel’s 3.75G network and large customer base”, said Segun Ogunsanya, chief executive officer, Airtel Nigeria.

MTN have been front runners in investing in mobile content in Africa, through partnership with Rocket Internet, also called Africa Internet Group, which funds a wide range of electronic commerce and marketplace ventures.

Only recently, the company launched its BetterMe app into the market. The app was developed by a Nigerian living in Nigeria. “The issue of co-creation and collaboration is very critical to our success. In doing this, we help build businesses, which is very strategic and important to us as a responsible corporate player in Nigeria”, said Adebayo Adekanmbi, chief marketing officer, MTN Nigeria, in an interview.

Analysts at Business Monitor International (BMI) noted that efforts to establish incubation programmes for the advancement of more locally-relevant content is indicative of the shifting landscape in Sub-Saharan Africa’s (SSA) telecoms market.

Throughout 2013 and 2014, several regional players, including Airtel, MTN, Orange, Tigo, Vodacom and United Arab Emirates (UAE) Etisalat, outsourced the management of telecoms towers. The alleviation of this operational and financial burden is enabling mobile operators to increase their focus on developing new services, which would help them to reduce churn and boost Average Revenues per User (ARPUs) as the region’s telecoms market mature, according to the report by BMI.

The development of network agnostic content services will also create growth opportunities beyond their own subscriber bases. The said investment is hugely beneficial to technology start-ups, with support from telcos’ likely to drastically improve their chances of long term survival and success.

Recent studies indicate that Small and Medium Enterprises (SMEs) typically become moribund after a few years of operations, while fewer than 10 percent of all start-ups thrive and grow to maturity.

Although other technology incubation programmes driven by other institutions, including government, venture capitalists, angel investors, multinationals and private equity firms exist, their reach in terms of marketing power cannot match mobile operators’.

According to industry watchers, telcos offer start-ups funds and advice, but also their extensive distribution network. ‘Glo Mobile Tutor’- the outcome of Globacom’s recent push into the digital service, is a subscription-based solution, targeted at secondary school students. It is already available in all 774 local government areas of the country.

Inferior payment infrastructure in Nigeria might be another reason supporting telcos recent incursion into digital incubation, as application and content developers have expressed confidence about the prospect of partnering with telcos.

Majority of Nigerian consumer are frightened of payment card hacks – one of the country’s biggest urban myths – and prefer bank transfers or Cash on Delivery (CoD) when purchasing goods and services online.

Market observers are of the view that carrier billing is a knight in shinny armor, and collaborating with telcos might be a good choice for start-ups at the beginning. Market observers say digital incubation initiatives could also help protect telecoms operators’ data revenues from being eaten up by third-party content providers, such as Skype, Facebook, Whatsapp, Viber, Tango, Google Hangout, amongst others.

In 2014, Globacom, second national carrier, said it invested $1.25 billion in the deployment of an all Internet Protocol (IP) network. On the other hand, MTN said recently that it intends to spend an average of $1.2 billion annually on network expansion initiatives. But, the immense popularity and proliferation of messaging applications and other Over-the-Top (OTT) content services such as Whatsapp, are negating operators’ investment in network expansion, taking into consideration the steady decline in revenues generated from voice and SMS (Short Messaging Service). Telecoms companies have found it pretty difficult to charge these OTTs for tapping their expensive network infrastructure, market observers have said.

Mobile operators are perhaps banking on the development and massive usage of locally-developed content services by subscribers to extricate them from this rather uncertain predicament. By boosting mobile data adoption and revenues, whilst improving customer loyalty in a country where multiple-SIM (Subscriber Identity Module) ownership is the norm, telcos foray into digital incubation could help mobile operators justify ongoing investments in network expansion.

Ben Uzor